Research Reports

Updated Dec. 20, 2004 12:01 a.m. ET

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The following companies are subjects of research reports issued recently by investment firms. Many of the reports may be obtained through the company research area of The Wall Street Journal Online at WSJ.com, or are available through Factiva.com. Share prices at the time the report was issued and the date of the report are in parentheses. Some of the reports' issuers have provided, or hope to provide, investment-banking or other services for the companies being analyzed.

General Mills
(GIS-NYSE) by Merrill Lynch (47.06, Dec. 14) General Mills announced today that it had reached an agreement with
PepsiCo
in which Pepsi will pay General Mills $750 million to acquire the 40.5% of the Snack Ventures Europe JV that General Mills currently owns. The sale is expected to close early in calendar 2005.

While this news was a bit of a surprise to us, we think it makes eminent sense in many regards. General Mills will have a significant need for cash next year, particularly in October, when it will either exercise its option to purchase the remaining 29 million GIS shares that Diageo owns to convert its zero-coupon convertible bond, or redeem the convertible bond outright for cash.

Our fiscal 2005 pro forma EPS estimate of $2.92 remains, as does our $3.20 estimate for fiscal 2006. We would note that GAAP estimates may change, due to the gain on the sale.We are maintaining our Buy rating.

HRLY expects to close Micro Systems acquisition (estimated sales $15 million/year) in January and is in talks with "at least two other" comparably sized targets. Micro Systems is a great fit since it's a competitor with a complementary product line (transponders, power amps and drone-control systems used in naval training). It could contribute three cents/share in the second half....After Micro Systems closes, HRLY will have financial flexibility to handle additional transactions, although integration execution could be an issue.

Monster Worldwide
(MNST-NNM) by Ryan Beck (28.42, Dec. 13) Rating: reiterate Outperform/Aggressive Risk. Price target: 32. The Monster Employment Index rose to an all-time high in November 2004, at 117 overall versus 114 in October 2004 and versus 88 in November 2003. The sharpest increases came in the professional, scientific and technical services and utilities. Online demand for health-care workers also jumped five points. While finance and insurance saw a two-point sequential decline, it remains the fifth-highest industry category, and was offset by a three-point increase in the business and financial operations...category.

The computer and mathematical...category experienced a sharp six-point sequential decline in the November period. This category is a close proxy for information technology staffing-related jobs...We expect that after a seasonally slow December period, temporary and permanent staffing will [see] solid increases in 2005.

StorageTek
(STK-NYSE) by Susquehanna Financial (30.25, Dec. 13) The tape-library market at the high end is shrinking and STK's core tape business is under pressure, and we believe this would affect the stock in the next six to 12 months. Until we see STK gaining traction in areas adjacent to tape libraries and tape drives, we would remain Cautious on the stock. Very near term, the stock may be supported by buybacks and by Q4 revenue meeting guidance. However, the most recent guidance of mid-teens to 18% sequential growth for Q4 had been reduced several times over the course of the year. The Street is now at $2.18 billion in revenues for 2004, flat with 2003, compared to guidance of 5% to 8% growth given in late 2003.

Using option prices of STK and the MID (Standard & Poor's 400 Midcap) we [calculate] that STK has a positively distributed probability curve, implying the stock is more likely to increase from current levels.

U.S. Energy
(USEG-NNM) by Dutton Associates (2.87, Dec. 13) Speculative Buy reiterated. Price target: 3.50. U.S. Energy's [recent] announcement of a definitive agreement with Bell Coast Capital (BCCC), Vancouver, B.C., Canada, is a follow-up to the previously announced letter of intent between the two companies (along with Crested Corp.) [dating to] November. The transaction is an important first step for USEG in demonstrating a commitment to adhere to its restructuring strategy....

The definitive agreement is for USEG to sell a 50% interest in USEG's and Crested's holdings in the Sheep Mountain Uranium Mines and properties plus a commitment by BCCC to contribute on or before Dec. 29, 2007, its 50% interest in Sheep Mountain to a 50/50 joint venture to explore and develop uranium on the properties. The properties...can produce 1,000 tons of uranium ore per day. We suspect BCCC could see that uranium prices are headed higher and $30/lb looks eminent between now and 2007.

Unocal
(UCL-NYSE) by Fulcrum Global Partners (42.47, Dec. 13) Buy. Unocal, a 100-plus-year-old international independent oil and gas producer, will settle human-rights lawsuits related to Myanmar (Burma) slave-labor allegations. Settlement terms have not been disclosed. Reasonable financial settlement of the case would be a positive....

Whether imminent or not, the option of selling the company should be bolstered by settlement of Unocal's human-rights litigation. Potential suitors would prefer not to deal with legacy litigation out of controversial Myanmar; and whether a primary agenda or not in the settlement of the case,we believe the ability to sell the company goes up a notch after the settlement.

Of note, Unocal has started to fund pension-fund gaps, and has bought back shares instead of [expanding].

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